Are you wondering if you need an innovation strategy for your business? Developing a strategy for innovation is a fundamental first step for businesses looking to innovate. But it’s one many start-ups, scale-ups and even established businesses with R&D are tempted to overlook. Don’t let that happen to you as the downsides of skipping over this elementary phase will invariably outweigh any perceived benefits. Indeed, it could cost you dearly in the long term. So, if you’re feeling overwhelmed or simply believe it’s unnecessary to craft an innovation strategy, it’s time to challenge those mindsets. We’ll help you do just that by unpacking what an innovation strategy is, and why your business needs one. Crucially, we’ll include pointers on what it takes to make your innovation strategy a sure-fire winner.
What’s an innovation strategy?
An innovation strategy articulates the long-term goals and guiding principles for your company’s innovation. It also contains the roadmap you’ll use to reach these innovation objectives. Inextricably linked to your business strategy, your innovation strategy will focus on which brand-new products or services you’re going to create or which of your company’s existing offerings you’re going to improve. If crafted correctly, the strategy choices your business makes on innovation should align closely and work towards achieving your overall business strategy.
Why have an innovation strategy?
Having a well-crafted strategy for your innovation will not only help keep your business on track, it can also help your business be successful. So, it’s a no-brainer to have one. Whether you have a start-up or an established business, having your team sing from the same hymn sheet is a must. You’ll avoid wasting valuable R&D dollars on activities that don’t align with your business strategy. And your venture won’t only save money. By developing an innovation strategy, you’ll also help your innovation get to market faster and pip your competitors to the post.
How to create an innovation strategy?
When it comes to developing a strategy for your innovation, the good news is you can use the same approach as you would for your business strategy. To simplify and streamline the process, many innovation strategy experts recommend following a methodology called the Strategy Choice Cascade.[1] The five-step process helps businesses centre on the best innovation strategy and provides a solid foundation for implementation.
1. Set the purpose
Finding the why of your innovation is your starting point. The question for you and your team to consider is, what is the guiding purpose of your innovation that will help your business succeed? And what do you want your innovation to accomplish? Zeroing in on the types of innovation your venture will pursue is essential for identifying your innovation’s purpose. In broad strokes, there are two routes to follow when it comes to innovation: leveraging an existing business model and business model innovation.
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Leveraging an existing business model
This pathway to innovation has two streams of its own. The first stream is radical innovation, focusing on entirely new, innovative technologies. The second is innovative improvements that enhance existing products or services, rather than create a paradigm shift in a market. Examples of cutting-edge radical innovation include biotechnology breakthroughs[2] or the first iPhone.[3] On the other hand, product or service improvements cover incremental innovation such as the latest model of a car brand with new safety features, Gillette razors switching from a single to multiple blades[4] or even faster and more environmentally friendly grocery delivery services.
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Business model innovation
Business model innovation, as the name suggests, involves creating a unique way to deliver an existing or new product or service. New business models are classified as disruptive when they create a novel way of delivering a product or service to customers. But that product or service itself doesn’t have to be new. Salesforce’s delivery of the first cloud-based customer relationship management system in 1999 is one such example. Uber and Airbnb are other examples of business model innovation in the taxi and travel accommodation markets respectively. Sometimes it’s possible for business model innovation to occur in tandem with technological innovation. Known as architectural innovation, examples include Google’s AdWords-based dynamic search engine developed in 2003. It was both a technological step change and business model disruption because the AdWords product for advertisers opened a two-way ‘dialogue’ and interaction between advertisers and people searching Google.[5]
2. Identify the right playing field
Being on the right playing field is all about knowing your market. Which geographical markets can and do you want to operate in? Which product or service category will your innovation initiatives target? And which customer segments will you serve? This stage of developing your innovation strategy involves getting a handle on your competitors. Make sure you’ve taken the time to understand what the customers in your target market(s) want. And don’t be tempted to copy and paste the innovation strategy of a competitor. Learn from it and be inspired to take your company’s innovation to the next level instead.
3. Craft your unique way to win
With the right playing field in your sights and deep knowledge of your customer needs and competitor offerings, it’s time to explore your innovation’s unique value proposition. How will your innovation fulfil its purpose and create value to deliver the sustainable competitive advantage your business needs? In a nutshell, there are three different ways your innovation can create value for customers. It will either save your customers time or money or provide additional benefits that customers will be willing to pay more for. These sorts of additional benefits can include your product being more durable and lasting longer, or providing a larger societal benefit.
The term unique value proposition is bandied about. But how do you go about creating one for your innovation and your business? The good news is a unique value proposition can be achieved through a process called value innovation. Value innovation is a process of creating market differentiation for your innovation and lowering the cost to create a sustainable competitive advantage. It’s the basis of what is known as the Blue Ocean Strategy, where a business achieves differentiation and a lower cost base. In so doing, the business opens up a whole new market with its innovation, carving out an area of ‘blue ocean’ and leaving the competition languishing in the doldrums.[6]
4. Unpack the capabilities
This is where the rubber hits the road in terms of crafting your innovation strategy. Now, you must marry your innovation purpose, market offering, and value-innovation-generated unique value proposition with your company’s fundamental capabilities. Factors to consider include your company culture and values, the R&D type and capability your business has, and the behaviours, knowledge and skills you have in-house or otherwise. Assess the capabilities you can already harness and identify which ones you could look to develop. That way you’ll ensure your company captures as big a share as possible of the value its innovations generate. Above all else, be honest and realistic about your capabilities. This will ensure you tailor your innovation strategy and the subsequent business plans you will roll out to deliver it accordingly.
5. Consider the support systems
It’s worthwhile including the resources and systems your company will need to execute its innovation goals in your innovation strategy. In other words, your company’s innovation ecosystem. Systems and networks, whether government or private sector, that your business will use to take its innovation from conceptualisation through to the start-up, scale-up and commercialisation stages.
Examples of support systems your business should consider include:
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Start-up, incubator and accelerator services
Start-up Incubators and accelerators exist to support start-ups as they grow. But they each fulfil different roles. Although they both can provide services such as co-working spaces and business mentoring, incubators typically help early-stage start-ups get off the ground whereas accelerators are focused on identifying high-growth potential start-ups and helping them supercharge their growth trajectories. For more information read our article, Incubators vs accelerators: Which one is best for start-ups?
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Research Service Providers
A Research Service Provider (RSP) is an organisation that provides R&D services in a particular specialist field and is registered with the Department of Industry, Science, Energy and Resources to conduct research activities for other businesses. RSPs can be universities or private research organisations, and they can support your innovation with their technical expertise and the additional resource they bring to your business. Another positive is that if an RSP completes eligible research under the Federal Government R&D Tax Incentive (R&DTI) scheme for your business, you can lodge a claim and receive an R&DTI refund or offset depending on your company’s circumstances. Find out more by reading our article, How a Research Service Provider can support your R&D.
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Software systems and business services
Although some of these services and systems can be accessed from the public sector or bought using government grants, your business will need to turn to the private sector to source a range of business services to ensure your venture can scale. From virtual Chief Financial Officers, Contract Chief Marketing Officers and outsourced manufacturing to inventory or accounting software, the list is endless. But it’s crucial to put solid foundations in place so all areas of your business can grow sustainably and efficiently as you scale.
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Funding for innovation
Funding is one of the most consequential support systems for your innovation. Without sufficient, consistent funding, your innovation and business strategies will wither on the vine. When you’re in the innovation game, whatever your business stage or sector, it’s a good idea to spread the risk when it comes to your funding strategy by ensuring you have a diverse capital stack to support your R&D. If you don’t have your eggs in one basket, your innovation and your business will benefit by being less vulnerable to changes in the capital markets, shifts in investor sentiment, changes in government grant policy or macroeconomic factors such as interest rate changes. To discover more about a diverse capital stack and how to build one, check out our blog, How to build the best R&D capital stack for your business.
Strategy for success
Having a robust strategy for your innovation will deliver holistic benefits for your business. From defining the company’s innovation purpose and type, to the market(s) you’ll serve, your business will reap the rewards at every stage of the innovation journey. And when it comes to resourcing your innovation, your strategy will provide you with a roadmap.
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Eligible R&D
Many businesses with innovation are eligible for the R&DTI, the Federal Government’s flagship program for funding Australian innovation. Under the scheme, eligible businesses with eligible R&D can receive up to 43.5 cents from every dollar they invest in R&D as a tax refund. And if you’re eligible for the R&DTI, you’re eligible to apply for a Radium Advance to access your refund early. So you don’t need to wait up to 18 months to receive this valuable capital injection.
Apart from access to capital sooner, Radium Advances offer many other benefits by being fast, reliable, non-dilutionary finance that can trigger additional R&D tax refunds if you reinvest your Radium loans in more R&D. So when you’re developing your innovation strategy, reach out for a no-obligation chat about how you can help fund your R&D with Radium Capital. We can also help connect you with our network of advisers and ecosystem partners to empower your business and innovation to succeed.
[1] G., A. and L., R., 2013. Playing to Win. Harvard Business Press.
[2] Harvard Business Review. 2015. You Need an Innovation Strategy. [ONLINE] Available at: https://hbr.org/2015/06/you-need-an-innovation-strategy.
[3] Big Think. 2018. Radical vs. Disruptive Innovation: What They Mean for Organizations – Big Think. [ONLINE] Available at: https://bigthink.com/plus/radical-vs-disruptive-innovation-what-they-mean-for-organizations/
[4] Yonder. 2023. 4 examples of incremental innovation in action | Yonder. [ONLINE] Available at: https://yonderconsulting.com/4-examples-incremental-innovation/.
[5] Bayes Business School. 2013. Business Models and Technological Innovation – how they interact | Bayes Business School. [ONLINE] Available at: https://www.bayes.city.ac.uk/faculties-and-research/research/bayes-knowledge/2013/october/business-models-and-technological-innovation-how-they-interact.
[6] Diana Porumboiu. 2021. What is Value Innovation and Why Does It Matter?. [ONLINE] Available at: https://www.viima.com/blog/value-innovation.